Cl,apter 2: Covered Call Writing 55 
one writes against, the higher his returns and the lower his break-even point will be. 
This is true for both cash and margin and is a direct result of the way commissions are 
figured: Larger trades involve smaller percentage commission charges. While the per­
centage returns increase as the number of shares increases for both cash and margin 
covered writing, the increase is much more dramatic in the case of margin. Note that 
in Table 2-14, which depicts cash transactions, the return from writing against 100 
shares is 9.9% and increases to 12. 7% if 2,000 shares are written against. This is an 
increase, but not a particularly dramatic one. However, in Table 2-15, the return if 
exercised more than doubles (21.6 vs. 10.4) and the return if unchanged nearly triples 
(13.0 vs. 4.4) when the 100-share write is compared to the 2,000-share write. This 
effect is more dramatic for margin writes due to two factors - the lower investment 
required and the more burdensome effect of margin interest charges on the profits of 
smaller positions. This effect is so dramatic that a 100-share write in a cash account in 
our example actually offers a higher return if unchanged than does the margin write 
- 7.1 % vs. 4.4%. This implies that one should carefully compute his potential returns 
if he is writing against a small number of shares on margin. 
TABLE 2-14. 
Cash covered writes (costs included). 
Shares Written Against 
100 200 300 400 500 1,000 2,000 
Return if exercised (%) 9.9 10.0 10.4 10.8 11.2 12.1 12.7 
Re~rn if unchanged(%) 7.1 7.2 7.5 7.7 7.9 8.4 8.7 
Break-even point 40.1 40.0 39.9 39.9 39.8 39.6 39.5 
TABLE 2-15. 
Margin covered writes (costs included). 
Shares Written Against 
100 200 300 400 500 1,000 2,000 
Return if exercised (%) 10.4 15.8 16.6 17.4 18.4 20.4 21.6 
Return if unchanged (%) 4.4 9.8 10.3 10.8 11.4 12.3 13.0 
Break-even point 41.2 41.1 41.0 41.0 40.9 40.7 40.6 
WHAT A DIFFERENCE A DIME MAKES 
Another aspect of covered writing that can be important as far as potential returns 
are concerned is, of course, the prices of the stock and option involved in the write.